A Pension Crisis Hits Illinois

by Christian Schneider

In February, Wisconsin governor Scott Walker proposed increasing unionized state employees’ pension contributions to 5.8 percent, up from virtually zero. Walker’s plan, along with his proposed collective-bargaining reforms, sent Wisconsin into a dizzying vortex of protests and hardball politics.

Yet as dire as Wisconsin’s fiscal situation is (deficit: $3.6 billion), the state’s pension system is fully funded and actuarially sound. This isn’t the case in Wisconsin’s neighbor to the south, Illinois.

Currently, Illinois is last in the nation in funding its retirement system, setting aside only 38.3 cents (see p. 23, table 4) for every dollar in pension benefits it promises its retirees. (Many experts recommend states set aside 80 percent of their retirement costs, at a minimum.) The state currently has $126.4 billion in pension liabilities, and assets half that amount.

These runaway pension benefits have consequences for Illinois taxpayers. According to the Illinois Policy Institute, an average Chicago household in 2020 will have to pay $3,369 per year for local and state government-worker pension payouts — up 119 percent from the current $1,539. Pension costs in the next Illinois budget will total $4.2 billion, swallowing up nearly two-thirds of a recent prodigious tax increase signed into law by Democratic governor Pat Quinn.

In an effort to ameliorate the damage wrought by the state’s pension time bomb, House Republican Leader Tom Cross has introduced a bill that would adjust the future benefits current workers could earn. The legislation, HB149, would not change benefits for those who are retired, nor would it take away benefits already earned by current employees. Cross’s proposal applies to current public employees in the state’s pension funds, such as teachers and state workers. It secures their retirement earnings to date and offers three choices for earning additional retirement income:

— Option 1: Employees can keep accumulating generous pensions but must contribute more in order to cover these future benefits.

— Option 2: Employees can accumulate slightly smaller increases to their pensions while contributing at current rates.

— Option 3: Employees can “bank” their current pension earnings and begin to contribute to personal savings accounts, which the state will match with contributions up to 6 percent of payroll.

According to the Illinois Policy Institute, the mix of increased employee contributions and reduced pension increases in the Cross plan is expected to save the state $2 billion annually. The proposal would need to be passed by May 31, the date set for the General Assembly to adjourn, and some believe it would need to pass by majorities sufficient to override a possible veto by Governor Quinn. That is, unless Illinois lawmakers decide to flee to Wisconsin.

— Christian Schneider is a senior fellow at the Wisconsin Policy Research Institute.

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